Abstract

Cabo Verde has emerged as one of West Africa’s most distinctive success stories, combining democratic governance with sustained economic growth to achieve upper-middle-income status. This paper examines the archipelago’s economic trajectory, political institutions, and regional integration strategies. Despite structural vulnerabilities including insularity, resource scarcity, and exposure to external shocks, Cabo Verde has leveraged its democratic stability, strategic location, and service-based economy to achieve per capita incomes among the highest in the region. The country faces pivotal elections in 2026 that will test its mature power-sharing model while determining whether it can sustain the reforms necessary to achieve high-income status within a decade.

1. Introduction

The Republic of Cabo Verde presents a compelling case study in African development. Ten islands scattered 570 kilometers off the Senegalese coast, with a population of approximately 510,000, this small nation has defied conventional expectations . Lacking significant natural resources and afflicted by persistent drought, Cabo Verde nonetheless ranks as Africa’s most democratic country and enjoys per capita incomes that surpass many resource-rich neighbors .

This paper argues that Cabo Verde’s success derives from a virtuous cycle linking political stability, institutional quality, and economic diversification. Its democratic consolidation has attracted investment and development partnerships, while economic growth has reinforced public confidence in democratic institutions. However, this cycle faces persistent challenges: external vulnerabilities, structural constraints, and the need to translate macroeconomic gains into broad-based prosperity.

2. The Economic Transformation: From Aid Dependence to Service-Led Growth

2.1 Macroeconomic Trajectory

Cabo Verde’s economic performance in recent years has been remarkable. Following a strong post-pandemic recovery, the economy grew by 7.3 percent in 2024 . The International Monetary Fund projects real GDP growth of approximately 5 percent for 2025, while the World Bank offers a more optimistic 5.9 percent forecast . This momentum positions Cabo Verde among West Africa’s faster-growing economies, though from a relatively small base.

The composition of this growth reveals important structural shifts. Tourism accounts for roughly 20 percent of GDP, making it the single most important economic sector . The services sector more broadly drives economic expansion, complemented by industrial growth and modest agricultural recovery . Remittances from the Cabo Verdean diaspora—which exceeds the domestic population—provide another crucial pillar, with strong flows supporting both household consumption and the external accounts .

2.2 Fiscal Transformation and Debt Dynamics

Perhaps most striking is Cabo Verde’s fiscal improvement. In August 2024, S&P upgraded the country’s credit rating from B- to B, followed by a further upgrade to B+ with positive outlook in February 2026 . This dual upgrade within eighteen months reflects “fiscal and external progress” driven by tourism and remittance flows .

The rating agency projects primary government surpluses over 2026-2029, facilitating debt reduction. Public debt, which peaked at over 120 percent of GDP in 2015, is projected to fall to 97.4 percent of GDP in 2026 . Crucially, Cabo Verde’s debt profile remains manageable due to concessional terms: “the average cost of interest payments on Cape Verde’s public debt will be 6.6% of revenues in the period 2026-2029, one of the lowest in Africa and well below nominal GDP growth” .

The 2026 state budget, totaling 95.7 billion escudos (€870 million), targets a deficit of just 0.9 percent of GDP . This fiscal discipline reflects the government’s commitment to debt sustainability, though it has attracted criticism from opposition parties who argue that spending cuts undermine public investment .

2.3 External Sector Transformation

Cabo Verde achieved a historic milestone in 2024, recording its first current account surplus in nearly four decades at 3.8 percent of GDP . Preliminary data suggest a surplus of 3.3 percent in 2025 . This external improvement, driven by tourism receipts and remittances, reduces vulnerability to financing shocks and strengthens the currency peg to the euro.

Foreign exchange reserves now cover approximately 5.5 months of imports, providing adequate buffer against external shocks . The currency board arrangement with the euro, maintained since 1998, anchors monetary stability and controls inflation, which remains around 1.5-2 percent .

2.4 Structural Constraints and Vulnerabilities

Despite these achievements, structural obstacles persist. S&P identifies “the shortage of professional skills, the lack of interconnection between the islands, and the limited supply of water and electricity” as fundamental constraints . These reflect the archipelago’s geography and limited resource base.

Tourism dependency creates external vulnerability. Global economic slowdowns, energy price volatility, or supply chain disruptions can rapidly affect the sector . Climate change poses existential threats through sea-level rise, extreme weather events, and intensified drought . Hurricane Erin’s partial destruction of a shrimp farm in August 2025 illustrated these vulnerabilities .

The opposition PAICV has highlighted concerning trends in the 2026 budget, including a 38 percent reduction in public investment—”the lowest amount ever” according to party spokesperson Julião Varela . Cuts to housing, social protection, and environmental programs raise questions about whether fiscal consolidation may compromise long-term development capacity .

3. Political Institutions: Africa’s Most Mature Democracy

3.1 Democratic Consolidation

Since transitioning to multiparty democracy in 1991, Cabo Verde has consistently ranked as Africa’s most democratic nation in Freedom House’s annual survey . This reflects peaceful power transfers, electoral integrity, and institutional autonomy. The country has alternated power between its two dominant parties—the Movement for Democracy (MpD) and the African Party for the Independence of Cape Verde (PAICV)—multiple times without political crisis.

The 2026 elections will test this democratic maturity. Legislative elections scheduled for April will determine control of the 72-seat National Assembly, where the MpD currently holds a narrow 36-29 majority . Presidential elections follow in October, with President José Maria Neves (PAICV) completing his term. The current cohabitation arrangement—Neves as president and Prime Minister Ulisses Correia e Silva (MpD) as head of government—reflects the country’s political balance .

3.2 Institutional Architecture

Cabo Verde’s hybrid semi-presidential system distributes executive authority. The directly elected president serves as commander-in-chief, possesses veto power over legislation, and acts as political mediator . The prime minister, selected by the National Assembly, directs day-to-day governance and policy implementation . This power-sharing model requires cooperative inter-institutional relations, which have generally prevailed despite divided government.

Judicial independence is well-established. Judges to the nine-member Supreme Court are selected through three distinct mechanisms—presidential appointment, parliamentary selection, and Supreme Council of Magistrates nomination—fostering institutional autonomy . The National Elections Commission proactively maintains electoral integrity, operating a social media-focused verification unit to counter misinformation .

S&P notes that while the 2026 elections introduce “some uncertainty,” the “solid institutional framework ensures stable transitions and does not usually imply major radical policy changes” . This institutional resilience distinguishes Cabo Verde from regional neighbors where elections often produce political turbulence.

3.3 Party Competition and Policy Continuity

The two dominant parties offer distinct orientations within a broadly centrist consensus. The MpD, in power since 2016, emphasizes private sector development, digital transformation, and economic modernization. The PAICV, historically the independence movement, “advocates greater state intervention and more social spending” . However, alternations in power have produced policy continuity rather than radical shifts, reflecting shared commitment to democratic institutions and market-oriented development.

The opposition’s critique of the 2026 budget illustrates this dynamic. While PAICV deputies denounce spending cuts and insufficient investment, their proposed alternatives—salary increases, tax adjustments, pension reforms—operate within existing fiscal parameters rather than challenging fundamental economic policy . This bounded contestation characterizes mature democratic systems.

3.4 Media Environment and Governance

Cabo Verde’s media landscape is diverse for a country of its size, with five television channels, over twenty radio stations, and multiple print and online outlets . The constitution guarantees press freedom, and Reporters Without Borders ranks the country 30th globally in its 2025 World Press Freedom Index, noting particular strength in security indicators .

However, challenges persist. State-owned media dominate the sector, employing over 70 percent of journalists, and their leadership appointments effectively reflect government preferences despite nominal independent council oversight . Self-censorship occurs under state pressure, and a 2005 criminal procedure provision allowing charges for violating judicial investigation secrecy was deployed against three journalists in 2022 . These issues, while significant, occur within a context generally free from physical intimidation or detention of journalists.

4. Regional Integration and Strategic Positioning

4.1 ECOWAS Engagement

As an island state, Cabo Verde faces unique challenges in regional integration. The Praia-Dakar maritime link, scheduled for operation by late 2026, represents a strategic initiative to physically connect the archipelago to continental West Africa . This component of the broader Praia-Dakar-Abidjan multimodal corridor aims to “link Cabo Verde, an island state, to the other states of West Africa” , facilitating movement of people and goods while stimulating trade.

ECOWAS considers this corridor “an essential element of the wider strategy … aimed at facilitating the free movement of people and goods within the Community area, strengthening trade cooperation, promoting economic development and stimulating regional trade” . The project’s multimodal approach—integrating road, rail, and sea transport—reflects comprehensive regional planning.

The ECOWAS Representation in Cabo Verde, which held its first annual retreat in February 2026, continues to align national priorities with regional agendas . This engagement spans economic integration, security cooperation, and institutional coordination.

4.2 Maritime Security and the Blue Economy

Cabo Verde’s strategic location on major maritime routes between Latin America, Europe, and Africa exposes it to transnational organized crime. The archipelago faces risks from illicit arms trafficking, drug smuggling, and irregular migration . These challenges require regional responses.

Cabo Verde actively participates in the Yaoundé Protocol, the maritime security architecture coordinating 25 Central and West African governments. It hosts the Multinational Maritime Coordination Center for Zone G (covering The Gambia, Guinea-Bissau, and Senegal) and conducts joint patrols . This engagement reflects recognition that security challenges transcend national boundaries.

The West Africa Sustainable Ocean Programme (WASOP), launched in Mindelo in November 2025 with €59 million in EU funding, represents a major initiative to develop the blue economy while strengthening maritime governance . The program brings together 13 coastal countries, regional organizations, and development banks to address illegal fishing, protect ecosystems, and develop sustainable marine industries.

Cabo Verde’s hosting of the WASOP launch reflects its leadership role in regional ocean governance. Memoranda of understanding with the West African Development Bank (BOAD) and the ECOWAS Investment and Development Bank (BIDC) signal commitment to “blue finance” . The West African group of the FiCS Ocean Coalition, launched under BOAD leadership with two Cabo Verdean commercial banks as founding members, further institutionalizes this approach .

4.3 Development Partnerships

Cabo Verde maintains strong partnerships with multilateral and bilateral donors, though its transition to upper-middle-income status in 2025 will gradually shift these relationships. Deputy Prime Minister Olavo Correia acknowledges that future financing will involve “other instruments” beyond traditional donations .

The IMF and World Bank remain key partners. IMF data provides comprehensive economic monitoring , while World Bank analysis informs policy development, including the recent focus on gender dimensions of economic participation . European partners, particularly Portugal and the EU, maintain deep engagement through development programs and the currency peg.

5. Future Trajectories: The Ambition of High-Income Status

5.1 The Growth Imperative

The Cabo Verdean government has articulated an ambitious vision: reaching high-income status within a decade. Deputy Prime Minister Correia argues that sustained 6-7 percent annual growth, combined with investment in “connectivity, digital transition, energy transition and human capital qualification,” could triple GDP per capita to US$15,000 within 10-12 years .

Current per capita income stands at approximately US$5,420 (nominal) or US$12,250 (purchasing power parity) . The World Bank’s upper-middle-income threshold is approximately US$4,500, which Cabo Verde surpassed in 2025. The high-income threshold of approximately US$14,000 represents the next frontier.

Achieving this ambition requires overcoming structural constraints. Skills shortages limit labor productivity. Inter-island transportation barriers fragment the domestic market. Water and energy constraints cap economic activity . Each requires sustained investment and policy attention.

5.2 Sectoral Opportunities

Tourism will remain central. The entry of low-cost airlines into the Cabo Verdean market is already stimulating growth . Diversification within tourism—toward higher-value segments, year-round offerings, and greater geographic distribution across islands—could enhance resilience.

The digital economy offers promise. Cabo Verde’s AI Preparedness Index score of 0.43, while modest in absolute terms, reflects foundational elements for digital transformation . The government’s emphasis on digital transition as a priority area recognizes technology’s potential to overcome insularity .

Renewable energy presents both opportunity and necessity. Limited fossil fuel resources and high energy costs make the transition to solar, wind, and potentially ocean energy economically rational. Energy transition investments could reduce import dependence, lower costs, and support climate goals.

The blue economy represents an underexploited frontier. Sustainable fisheries, aquaculture, and marine services could diversify economic activity while preserving ecosystem services . The Calhau shrimp farm, producing with renewable energy and local feed, exemplifies sustainable aquaculture potential, though its partial destruction by Hurricane Erin also illustrates climate vulnerability .

5.3 Political Determinants

The 2026 elections will shape the policy environment for pursuing high-income status. Continuity of reform-oriented governance under MpD would maintain current trajectories. A PAICV victory might shift emphasis toward social spending and state intervention, though fundamental policy reversals appear unlikely given institutional constraints and external expectations.

Political stability itself constitutes an economic asset. S&P’s positive outlook reflects confidence in policy continuity regardless of electoral outcomes . Investors value predictability, and Cabo Verde’s democratic maturity provides it.

5.4 Regional Integration as Growth Multiplier

The Praia-Dakar maritime link, once operational, could transform Cabo Verde’s economic geography. Reduced transport costs and improved connectivity would facilitate trade, tourism, and investment flows. Integration with Senegalese and broader West African markets would expand opportunities beyond what the domestic market of 500,000 can provide.

Similarly, blue economy initiatives under WASOP and related programs could position Cabo Verde as a regional hub for maritime services, fisheries management, and ocean governance. Mindelo’s historic role as a port city could be revived and modernized.

6. Conclusion

Cabo Verde’s trajectory offers lessons for African development. Democratic consolidation and institutional quality have created conditions for sustained growth, while economic diversification has strengthened the foundations of political stability. The country’s service-based model, leveraging tourism, remittances, and strategic location, has generated prosperity despite natural resource constraints.

Yet challenges persist. Structural vulnerabilities—insularity, resource scarcity, climate exposure—require continuous adaptation. External shocks can rapidly affect tourism-dependent economies. Public investment constraints may compromise long-term development capacity.

The 2026 elections will test Cabo Verde’s mature democratic institutions while determining the policy path toward high-income status. Regardless of outcome, the country’s institutional resilience provides confidence in continued stability. The question is whether Cabo Verde can accelerate growth sufficiently to achieve its ambitious income goals within a decade.

Regional integration offers part of the answer. Maritime links to mainland West Africa, blue economy development, and security cooperation can multiply opportunities beyond what domestic resources permit. Cabo Verde’s strategic positioning—as archipelago, as democracy, as service hub—provides advantages that regional engagement can amplify.

In an African context often characterized by resource curses and democratic reversals, Cabo Verde demonstrates an alternative path: democratic governance, service-led growth, and strategic integration can deliver prosperity even without abundant natural resources. The archipelago’s continued success matters not only for its half-million citizens but as proof that political and economic development are mutually reinforcing possibilities.

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